Which Model of Financing Will Be Chosen by Delhi Government for Airport Metro?
Which model of financing will be chosen by Delhi Government for Airport Metro?
Assumptions for both the models
Passenger Escalation Factor CAGR 7.47%
Staff Escalation Factor 9.00%
Maintenance Escalation 9.00%
Ticket Price Escalation every two years 4.00%
Tax 30.00%
Project Life 30.00 years
First year operations 2011
Comparison of the Models Model 1 Model 2 BOT through VGF BOT through Funding
IRR % 10.56 17.34
Govt Grants Cr 2362
NPV (Cr) Cr 4021 6412
Model I( BOT Model Through VGF) gives an IRR of 10.56% when RoE is 12% else the IRR comes to 9.26% (without VGF). 12% RoE is guaranteed by government through VGF. The government may provide lump sum payment or fill in collection gap to achieve 12% RoE. There is huge flexibility available for the government in providing VGF.
In VGF model the concessionaire bears the construction and completion risk and brings in an greater equity of 33%. Also there uncertainties in the expected daily riders, project completions costs and meeting deadline of the 2010 Commonwealth Games. These risks are passed on concessionaire.
Model 2 ( BOT through funding and execution of Civil Works) gives an IRR of 17.43%. The government pays grants worth 2363 Cr. The concessionaire enjoys a very high IRR without bearing most of the risks. The government is bears the construction and completion risk and the there uncertainties in the expected daily riders, project completions costs and meeting deadline of the 2010 Commonwealth Games. Thus this option is like win loose one. The concessionaire contribute paltry 11% of takes no risks.
Decision: Delhi Govt will choose Model I( BOT Model Through VGF) as it transfers risks to concessionaire, retains flexibility in VGF payments and initial outflows are lesser. This option will be acceptable for concessionaire as the RoE is 12% compared to 10% cost of financing and there are steady cash flows
Assumptions for both the models
Passenger Escalation Factor CAGR 7.47%
Staff Escalation Factor 9.00%
Maintenance Escalation 9.00%
Ticket Price Escalation every two years 4.00%
Tax 30.00%
Project Life 30.00 years
First year operations 2011
Comparison of the Models Model 1 Model 2 BOT through VGF BOT through Funding
IRR % 10.56 17.34
Govt Grants Cr 2362
NPV (Cr) Cr 4021 6412
Model I( BOT Model Through VGF) gives an IRR of 10.56% when RoE is 12% else the IRR comes to 9.26% (without VGF). 12% RoE is guaranteed by government through VGF. The government may provide lump sum payment or fill in collection gap to achieve 12% RoE. There is huge flexibility available for the government in providing VGF.
In VGF model the concessionaire bears the construction and completion risk and brings in an greater equity of 33%. Also there uncertainties in the expected daily riders, project completions costs and meeting deadline of the 2010 Commonwealth Games. These risks are passed on concessionaire.
Model 2 ( BOT through funding and execution of Civil Works) gives an IRR of 17.43%. The government pays grants worth 2363 Cr. The concessionaire enjoys a very high IRR without bearing most of the risks. The government is bears the construction and completion risk and the there uncertainties in the expected daily riders, project completions costs and meeting deadline of the 2010 Commonwealth Games. Thus this option is like win loose one. The concessionaire contribute paltry 11% of takes no risks.
Decision: Delhi Govt will choose Model I( BOT Model Through VGF) as it transfers risks to concessionaire, retains flexibility in VGF payments and initial outflows are lesser. This option will be acceptable for concessionaire as the RoE is 12% compared to 10% cost of financing and there are steady cash flows